The Hindu Business Line : A missing `intent' that is causing tension

CHARTERED accountants are a worried lot these days. And naturally so. The Finance No. (2) Bill, 2004, appears to hit them below the belt. Clause 56 of the Bill inserts a new Section 277A in the Income-Tax Act, 1961.

The new section provides for rigorous imprisonment for a term not less then three months but which may extend to three years and with fine for falsification of books of account or documents, and so on, to enable any other person to evade any tax, penalty or interest chargeable or imposable under the Act.

Adding insult to injury, there is an Explanation to the proposed Section 277A providing that it shall be sufficient in any charge (without specifying any particular instance or sum of tax penalty or interest evaded or attempted to be evaded by such other person) to allege the general intent to enable such other person to evade any tax penalty or interest.

The new law will take effect from October 1, 2004.

There is already provision in the law for punishing abetment. False statement in verification under the Act or rule made thereunder is made a punishable offence under Section 277.

Concealment of income constitutes an offence. The filing of a revised return of the true income will not condone the offence, though it may be a mitigating circumstance. An agent having authority to make a return on behalf of his principal making a fraudulent return deliberately can be prosecuted under Section 277.

Proceedings before the income-tax authorities are expressly declared to be judicial proceedings within the meaning of Sections 193 and 228 of the Indian Penal Code and also for the purposes of Section 196 of the IPC.

The result is that for an offence committed in relation to income-tax proceedings, the assessee may be prosecuted and tried both under the provisions of Section 277 of the I-T Act and under the IPC though he cannot be punished twice for the same offence.

Section 278 E was inserted in the Act with effect from September 10, 1986. It lays down that in any prosecution for any offence under the I-T Act, 1961 which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental stat but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution.

The Explanation to Section 278 E lays down that culpable mental state included intention, motive or knowledge of a fact, or belief in or reason to believe in a fact. A fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.

Mens rea has ceased to be a basic requirement after the insertion of Section 278 E. The onus is on the accused to establish his innocence.

When the existing law already provides for punishment of the abettor, it is difficult to appreciate the need for the current amendment, to insert Section 277A.

The official explanation is that deterrence against making false books or documents with an intent to enable other persons to evade tax can be effectively provided by declaring the making of such books or documents an offence under the Act.

According to the lawmakers, it shall be sufficient for the assessing officer to allege that the accused had the general intent to enable the assessee to evade the tax. The assessing officer need not specify any particular instance of tax evasion.

Criminal law in this country was built on the ancient maxim actus non facit reum, nisi mens sit rea — no act makes the doer guilty unless he has a criminal intention. The act and the intent must go together to constitute the offence.

Black's Dictionary defines intent as a mental attitude which can seldom be proved by direct evidence, but must ordinarily be proved by circumstances from which it may be inferred.

Motive is what prompts a person to act or fail to act. Intent refers only to the state of mind with which the act is done or omitted. Criminal intent presupposes premeditation.

Is it the intention of the Government to prosecute somebody who can be alleged to have the intention to help the taxpayer make false returns and false documents?

The way the Explanation is drafted, one can infer the intention to make the harbouring of such thought about helping a taxpayer to evade tax an independent offence. Courts have all along held that there can be no prosecution of any person unless the offence of tax evasion or attempted tax evasion is proved.

The Report of the C&AG for 2002-03 points out that out of 12,303 cases for prosecution, 433 were disposed of and 18 convictions obtained. Compounding was done in 11 cases and acquittal ordered in 404 cases.

The Government has not thought it fit to make it an independent body as in the US. The judicial system has not marched in step with the radical thinking about crime related to fiscal evasion. The current amendment is viewed as a measure enacted in terrorem. It is not for want of powers that the Revenue Department in India is not able to tackle tax frauds.

(The author is former chief commissioner of income-tax.)

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